Google: We’re Spending $12.5 Billion on Motorola to ‘Protect’ Android

Quick take from Google’s investor call to discuss its pending deal for Motorola Mobility: The search giant is spending $12.5 billion on 25,000 patents, and getting a handset maker, too.

That’s if you take the company at its word: Google insists that it’s going to run Motorola as a separate operating unit, and that doing so will mean that it won’t grant it any special advantages compared to other Android partners like Samsung, HTC, etc.

So if that’s the case, the real value would seem to be Motorola’s patent stash, which Google thinks will be a valuable weapon in the high-stakes arms race that has recently started up. Which is why Google executives used the word “protect” at least six times while explaining the deal this morning.

Google CEO Larry Page used the verb in his opening remarks, referencing Apple, Microsoft and others; he and his lieutenants used the word most often when discussing Motorola’s patent portfolio. Presumably they’ll use the same language when they discuss the deal with regulators in the U.S. and Europe.

Google says its purchase of Motorola Mobility “will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing.” If it closes, the $40 per share purchase will represent a 63 percent premium to Motorola’s closing price on Friday.

First and foremost, Google is buying a major manufacturer of phones that support its Android line. Last quarter, Motorola sold 10.6 million handsets, up 28 percent from the year-ago quarter. Of that, 4.4 million — or about 42 percent — were smartphones. It also sold 440,000 media tablets.

It is not a cash machine: Last quarter, the company — spun off from the main Motorola business at the beginning of the year — lost $53 million on sales of $3.3 billion; it had operating losses of $23 million.

The two companies will host a conference call at 8:30 Eastern time; I’ll cover it live here.

8:31 am: Good morning! Thanks to Google for puncturing yet another hole in the “August is a slow news month” theory.

8:35 am: Here’s Larry, reading from a statement. Chronology: In May 2005, I met Andy Rubin, who had a “crazy” vision for open-source platform for mobile. Now Android is “one of the leading platforms in the industry.” “Andy, or should I say Android, has grown tremendously” since 2007 launch.

8:36 am: Praise for Motorola. “Sanjay made a big bet” by using Android as sole MMI developer.

8:41 am: Reeling off statistics about international success, partnerships.

8:41 am: Now Patrick Pichette.

8:41 am: Going over basics of deal. Says deal will be “mildly accretive.” MMI will run as separate business. Won’t affect Google’s core business in any way with regard to profits, operations, etc. Also won’t prevent us from doing other mergers and acquisitions — we’ve done 120 in the past couple years.

8:49 am: Page. “I’m really excited about this deal.” But we’ll operate MMI as a separate unit, and they have competency. This is about “protecting” and accelerating growth of Android. (Basically a nonanswer.)

8:50 am: Q: Time frame on accretion? Also, will you have to pay licensing fees, a la HTC, or does this remove that risk?

8:50 am: Pichette: We expect that once the deal closes, it becomes accretive immediately.

8:51 am: Drummond: “We’ve seen some very aggressive licensing demands in the Android system,” but sort of a nonanswer here, too.

8:51 am: Q: How does this change Android from a partner perspective? Do you think Microsoft now positions itself as a “neutral” platform?

8:52 am: Page: No change to Android. Still an open ecosystem.

8:52 am: Rubin: Nothing changes. Motorola remains a separate business. This is about “protecting the ecosystem, and extending it as well.”

8:52 am: Q: What about FTC and other regulators? Also, were there other bidders?

8:53 am: Drummond: Obviously we’ll need regulatory sign-off in the U.S., Europe and maybe elsewhere. “We believe this is a pro-competitive transaction.” Android has added competition and user choice, and so “protecting that ecosystem” is pro-consumer “almost by definition.”

8:54 am: We’ll have details on the transaction via public filings shortly.

8:55 am: Drummond: Motorola will continue to manage patents before the deal. We won’t talk about post-acquisition strategy today, but “we obviously feel we’ll be in a good position to protect the ecosystem.”

8:56 am: Pichette: We think it’s a great deal.

8:56 am: Q: I know you don’t want to talk about legal strategies, but talk about the business model issues with regard to partners. How do you keep a level playing field?

8:57 am: Page: We’ve been very successful with Android because we’ve worked with lots of partners. We’ll keep doing that.

8:57 am: Rubin. Every year we pick a lead partner to work with on a device. We don’t expect that to change at all. Motorola will be part of that bidding process, run as a separate company.

Q: How does this alter the ability to make a living-room move, given Motorola’s set-top business? Also, how does this affect Oracle wrangling?

A: Page. “We’re really excited” to work with MMI’s home business.

Jha: Big convergence happening between set-top and mobile. We’re very excited about that.

Drummond: Nothing more to add about Oracle.

9:00 am: Q: How aggressively will you look to acquire more patents after this deal?

Drummond: We’ve said we need to build a patent portfolio. So we’ll continue to do that.

9:01 am: Closing remarks from Larry. “We are really excited about this whole business.” “We at Google are very excited.” Tremendous opportunity. “We’re very excited.” Plays up home devices business, too.

MOUNTAIN VIEW, CA and LIBERTYVILLE, IL – AUGUST 15, 2011 – Google Inc. (NASDAQ: GOOG) and Motorola Mobility Holdings, Inc. (NYSE: MMI) today announced that they have entered into a definitive agreement under which Google will acquire Motorola Mobility for $40.00 per share in cash, or a total of about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011. The transaction was unanimously approved by the boards of directors of both companies.

The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.

Larry Page, CEO of Google, said, “Motorola Mobility’s total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers. I look forward to welcoming Motorolans to our family of Googlers.”

Sanjay Jha, CEO of Motorola Mobility, said, “This transaction offers significant value for Motorola Mobility’s stockholders and provides compelling new opportunities for our employees, customers, and partners around the world. We have shared a productive partnership with Google to advance the Android platform, and now through this combination we will be able to do even more to innovate and deliver outstanding mobility solutions across our mobile devices and home businesses.”

Andy Rubin, Senior Vice President of Mobile at Google, said, “We expect that this combination will enable us to break new ground for the Android ecosystem. However, our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices.”

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals in the US, the European Union and other jurisdictions, and the approval of Motorola Mobility’s stockholders. The transaction is expected to close by the end of 2011 or early 2012.

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